KAI Union Warns Against Hanwha Stake Increase

Дата публикации: 13-08-2026 18:28:47

The labor union of Korea Aerospace Industries (KAI) is drawing attention for opposing Hanwha Group’s stake increase and urging the Fair Trade Commission to disallow the business combination. The argument is that since Hanwha is KAI’s supplier as well as a competitor in the space business, its partic

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The labor union of Korea Aerospace Industries (KAI) is drawing attention for opposing Hanwha Group’s stake increase and urging the Fair Trade Commission to disallow the business combination. The argument is that since Hanwha is KAI’s supplier as well as a competitor in the space business, its participation in management raises concerns about conflicts of interest and information leaks. However, it is pointed out that, unlike general manufacturing, the defense industry’s procurement and costs are managed by the government, making it structurally difficult for Hanwha to arbitrarily control KAI’s supply chain.

The KAI union issued a statement on Aug. 12 opposing Hanwha’s management participation. The argument is that because Hanwha is a supplier in the aviation sector and a competitor in the space sector, there are concerns about conflicts of interest and information leaks.

Previously, Hanwha Group had been purchasing KAI shares since November last year. It disclosed that it had secured a 15.89% stake as of Aug. 10. The purpose of the holding was also changed to ‘management participation.’ Consequently, it became subject to the Fair Trade Commission’s business combination reporting and review.

The KF-21 engine, which the union cited as a representative example, is not structured to be ordered by KAI. Hanwha Aerospace signs a contract directly with the Defense Acquisition Program Administration. The size of the engine supply contract for the initial mass production of the KF-21 is approximately 1.1794 trillion won (about $830 million).

KAI is a system integration company that develops and mass-produces finished aircraft. It is not the procurement entity for the engines themselves. The designation of defense materials and defense contractors is also handled by the government. Under the Defense Acquisition Program Act, the Minister of the Defense Acquisition Program Administration makes the decision in consultation with the Minister of Trade, Industry and Energy.

It is also difficult for Hanwha to use its management rights to prioritize the adoption of its affiliates’ products or influence prices. This is because the government manages the costs of defense contracts. Costs are calculated according to government cost accounting regulations. It is a structure where it is difficult for a major shareholder to arbitrarily set prices like a general civilian enterprise.

The business combination of Hanwha and Daewoo Shipbuilding & Marine Engineering (currently Hanwha Ocean), which the union cited as a precedent, also requires a closer look at the details. On April 28, the Fair Trade Commission extended the implementation period of the corrective measures imposed on Hanwha Aerospace, Hanwha Systems, and Hanwha Ocean by 3 years until May 2, 2029. The union presented this as evidence that concerns about restricted competition have not been resolved.

The Fair Trade Commission explained that no illegal acts, such as non-compliance with corrective measures, were found over the past 3 years. It stated that this extension was also in accordance with the review procedure scheduled at the time of the initial approval. This decision was based on the judgment that the market structure remains concentrated, with Hanwha Ocean maintaining its top position in the surface ships (67.3%) and submarines (64.8%) markets.

This case is worth noting in that concerns about restricted competition can be managed through corrective measures and post-inspections even while allowing the business combination. This means that if there are concerns about restricted competition in the combination of KAI and Hanwha, the possibility of management through corrective measures can also be reviewed alongside the method of disallowing the business combination altogether.

In the space business, there is another perspective on whether it is efficient to maintain continuous competition among domestic companies. The 2026 budget for the Korea Aerospace Administration is 1.1201 trillion won. Although it increased by 16.1% from the previous year, the scale is still small compared to advanced space nations such as the United States. In this situation, there can be a debate over whether it is efficient for two representative domestic companies to each equip themselves with research and development and mass production capabilities for similar micro-satellite system projects.

Even if Hanwha expands its stake in KAI, it does not lead to a structure that monopolizes the entire domestic defense market. There are separate major operators in each field, such as Hyundai Rotem for ground weapons, LIG Nex1 for guided weapons, and HD Hyundai Heavy Industries for naval vessels. The analysis suggests that the impact of the combination of KAI and Hanwha in the aerospace sector needs to be viewed separately from the competitive structure of the entire defense market.

Experts believe that this stake acquisition could serve as an opportunity to grow the size of domestic defense companies. Choi Gi-il, professor of military studies at Sangji University and director of the Korea Defense Industry Institute, said, “Upsizing and integration among domestic defense contractors are indispensable,” adding, “We must increase our weight class and grow in size to survive in global markets.”

Kim Ho-sung, president of the Korean Association of Defense Industry Studies, also stated, “Even if KAI is acquired by Hanwha, it will be operated as a separate legal entity, and since the engines are made by Hanwha Aerospace anyway, I do not expect there to be major problems.”

Mentioning the massive defense enterprise models of Italy and the United States, Kim pointed out, “If we continue as we are now, there is no vision for aviation.” His argument is that even if the localization of aviation engines is pursued, there will be no market outlet unless it is supported by aircraft exports. He said, “For the sake of the future, I want to cast a vote in favor of the combination of the two companies.”

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